Effective today, Thursday, January 1, 2015, Nigeria’s power sector would enter a landmark stage, as operators in the power sector would now be held more liable for failure to deliver on their contracts.
This is as government would officially declare the activation of a contract based electricity trading era. All the Power Purchase Agreements (PPAs) and Vesting Contracts entered in the sector would now become activated.
Operators are to be bound by contracts and respect for contracts. With the activation of the contract-based regime, every power producing asset, or any electricity supply would come under a contract, with heavy penalties meted out for failures.
The Nigerian Electricity Regulatory Commission (NERC) on its part has issued an order ending the interim rules that guided the market since privatisation. The amended Multi Year Tariff Order (MYTO 2.1) would now come into full force. Every operator in the electricity market is now expected to do 100 per cent settlement. They are also expected to pay their bills 100 percent.
Minister of Power, Prof Chinedu Nebo, who gave the clarification in Abuja yesterday, told The Guardian that the electricity market had not gotten to the stage of full maturity for the commencement of full Transitional Electricity Market (TEM). Refuting an earlier release that TEM would be declared today, he said the market would simply transit into that stage at full maturity.
Nebo also stressed government’s resolve to “radically address” the lingering metering-gap existing in the power sector.
He said that “What I am declaring is that the contracts would be activated. These contracts are the ones that would lead to the activation of TEM at a later date. TEM would come into force when the market becomes mature. The market is still at its transitional stage.
“By tomorrow (today), I will declare the official activation of all contracts in the sector. Trading and relationships would be based on contracts, which had previously being signed but not activated. We want to make sure that everything is in place then, it becomes the full market for the sector.” He stressed: “TEM is not declared. It is understood,” Nebo said on Wednesday.
The contract stage is considered one of the stages characterised mainly by competition for the market. Counterparties relationships would now be governed by contracts unlike in previous era.
The Nigerian Bulk Electricity Trading Plc (NBET) had in an interview with The Guardian assured that the Power Purchase Agreement (PPA) with generation companies and the Vesting Contracts VCs) that it entered with distribution companies would boost the availability of gas for power generation.
Managing Director of NBET, Rumundaka Wonodi, gave insights into the PPA with generation companies and the Vesting Contracts (VCs) with the distribution companies.
He noted that under the PPA and VCs, generation and distribution companies have obligations to take gas supplied or pay for not taking such.
He said: “In the PPA, there is a take or pay obligation for gas. In the VCs, we have said that the vesting contract would also include take or pay obligation of gas so that if there is any gas cost that comes through the PPA to the Bulk Trader, it is passed down to the distribution companies through the Vesting Contract.
Speaking on the expected direction of the market in 2015, Chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr. Sam Amadi noted that the activation of contracts means that the distribution companies would have no option but to trade fairly.
He said the end of the interim rules and coming into effect of contract based market means that the market would enter a very critical phase that would ensure better delivery for consumers.
He explained that as a game changer in the market, operators would either submit to competitive trading or lose market credibility and revenue, considering that the Bulk Trader is expected to only deal with operators without unwholesome sentiments.
“TEM is not a physical declaration. It is about market settlements. It is about market rules. Contracts are now open. The stage we are entering into means that the interim rules are over, but new the Multi Year Tariff Order (MYTO) takes over.
“The interim rule has ended. We have signed the order. Every operator would pay 100 per cent of their bill with be the consummation of all contractual obligations as stipulated in the rules.”
He urged all actors to do their beats, while on his part, promising a level playing ground. He emphasised that government would not accept any excuse for the inability of all actors to provide Nigerians with uninterrupted power supply.
“The Central Bank of Nigeria is ready, hence all market participants should perfect their papers in order to access cheap fund under the Government’s Intervention Initiative.”
He explained further that “You sign your contracts and if Discos do not pay their bills to Gencos, the Bulk Trader settles the bill and recovers its money from the LCs (local cheques) that are with the banks.
“It is a market of full liability. For us at NERC, the critical thing that will determine TEM is that the tariff is done and LCs are in the bank. The CBN fund is ready as well as everything that is needed and so we expect it to happen, it is not a political ceremony but a market event that should happen without any noise.”
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